maglog
By Terry McMullan, publisher
On June 28 it will be 24 years since then-treasurer Peter Costello launched the goods and services tax.
An insurance invoice had been expected to declare the premium, then fees (if any) and then state stamp duty.
The GST would then be imposed on the total. But (presumably to get them onside) the states were in fact left free to include stamp duty after the GST. Stamp duty on most premiums is now about 10%, so added to the cumulative cost it has become a big part of the invoice.
Nothing will change that distorting inflationary arrangement, but as Australia’s economic challenges continue, those hardest-hit have been low-income families struggling to deal with higher mortgages and rent payments.
Insurance is a long way down their priority list, but if they’re among the rapidly growing cohort of Australians who live in strata communities, non-insurance is not an option.
The Property Council says up to 26% of Australians now live in properties with strata titles. Numbers are growing at about 7% a year as our cities battle urban sprawl.
That’s a very large cohort, and one political parties are paying more attention to.
This year’s annual strata insurance premium for the group of townhouses where I live came to $9233.25. That’s probably right on the market, according to the metrics used by CHU’s chief executive Kimberley Jonsson at the Insurance News strata insurance seminar in Sydney on May 30.
Added to the premium on my invoice was a list of fees and charges: an “insurer fee” of $105, then GST of $1040.40, stamp duty of $1015.66, and a “broker fee” of $1065.66. That brought the premium payment up to $12,459.97, with “fees” adding $1218.66.
The broker fee is in addition to a commission of about 20% of the premium. But that’s not what I want to focus on. It’s that “insurer fee” and the reasoning behind it. I would have asked our property manager – who is, incidentally, also an authorised representative for the broker – but he had previously assured me he knew nothing about insurance and would simply refer questions on to “the experts”.
So, I called the experts direct and my call was eventually returned by a broker. I assured him my interest was personal and asked what this “insurer fee” was all about. He initially suggested it was a “fee charged by an underwriting agency for obtaining the cover from an underwriter”.
But when I expressed doubt, he amended that to it probably being “a fee for us arranging the cover, research, selecting the insurer or the agency”.
But isn’t that what the commission paid by the insurer is for? His response: “The property manager has to be paid as well.” Why, then, am I paying a separate fee for the property manager’s services? And so on. It was depressing.
The chief executive of one leading strata insurance broker, which doesn’t charge additional fees, estimates 40-60% of his competitors are imposing fees on top of the commission. He says many of those brokers have close relationships with property managers, and dismisses the “insurer fee” as simply a furphy.
Let me briefly explain why this issue matters to me. My tenure in insurance has included lengthy stints managing external communications at ICA and then NIBA, before I was sucked into insurance media.
I admire this industry, its people, its culture and its reason for existing. I’ve followed brokers’ gradual rise in regard from insurance salesman to trusted risk advisers. But reputations are fragile.
The bashing insurers took from the Hayne royal commission in 2019 is a reminder of how the failings of a few can do serious harm to the reputations of the many.
It led to stricter regulations and imposed six overriding principles to follow, the first of which fortifies the 258-year-old industry maxim of “utmost good faith”. The last principle simply states: “When acting for another, act in the other’s best interests.”
Do not try to explain all this to a mainstream media journalist: there is no way it can be spun positively. And if the media digs deep enough on behalf of all those struggling strata residents, it will promote a picture of rapacious insurance brokers.
The politicians will respond and the regulators will be told to get tougher. Sorry, but that’s my opinion; feel free to disagree.
If brokers working in strata are satisfied the issues I’ve discussed above meet the criteria for utmost good faith, then fine.
For myself, I’m stuck on whether my property manager is also my broker, and whose interests he sees himself working for.
In a recent Insurance News podcast, I opined that we shouldn’t be waiting for outside parties such as APRA or the ACCC to do something about this situation. NIBA is the obvious organisation to take the lead and sort it out.
But after last year’s action by influential members that led to the dumping of a commission disclosure provision relating to small business customers in NIBA’s draft code of practice, you have to wonder whether self-regulation has the muscle to do the job.
